Interest-free deals – Know the real cost of an interest-free deal

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Interest-free deals let you take goods home or go on a holiday and pay off the cost over time. But interest-free doesn’t mean cost-free.

Fees can add up quickly and if you don’t repay the balance in the interest-free period, you’ll be charged a lot in interest.

How interest-free deals work

With an interest-free deal, the cost of a product or holiday is typically put on a credit card or store card, which you pay off over time. The card has an interest-free period that applies for goods or services provided by a retailer. 

An interest-free deal is different to buy now, pay later. After the interest-free period ends, you’re charged interest on any amount not fully paid off. 

To repay the balance on an interest-free deal you may be able to choose to:

  • Pay by equal instalments — You make the same regular repayment over the interest-free period totaling the amount borrowed. 
  • Pay by minimum repayment — Making the minimum repayments will not pay off the total amount borrowed by the end of the interest-free period. You will need pay the balance before the interest-free period ends to avoid paying interest.
  • Deferred payment — You don’t make any payments until the end of the interest-free period.

Costs of an interest-free deal

Although you may not pay interest during the advertised period, there may be other costs to pay.

If you still have money owing after the interest-free period ends, you’ll be charged interest. Interest rates can be as high as 26%. 

Retailers also charge fees on interest-free deals, which may be added to the amount borrowed. Fees may include: 

  • establishment fees
  • payment processing fees
  • account keeping or service fees
  • annual fees on the credit or store card
  • late fees if you miss a payment

Work out how much you need to repay each month to avoid paying interest.

How to make the most of an interest-free deal

Know the fees, charges and interest rate

Before you sign up, read the Key Facts Sheet to find out what you’ll pay. Check how long your interest-free period will last, and what the interest rate is after that.

Pay more than the minimum repayment

The minimum repayments won’t pay off the balance before the interest-free period ends. Before you sign up, make sure you can pay more than the minimum required amount. This way you’ll pay it off before the interest kicks in.

Don’t put off making repayments

High interest rates kick in if you haven’t repaid the balance before the interest-free period ends. Consider whether you can afford to make early repayments.

Don’t use the card or account for other purchases

You may pay a high interest rate on any other purchases you make. 

Review your account regularly

Check the date your interest-free period ends when you get your statement. Make sure you’re paying enough to pay off the balance within the interest-free period.

The lender doesn’t have to remind you when the interest-free period ends.

Other ways to pay

Don’t feel pressured to sign up for an interest-free deal or a ‘limited time interest-free’ offer. There are other ways you can pay.

  • No or low interest loans — If you’re on a low income, these loans can help you pay for essential household items.
  • Lay-by — Pay off the item over a number of equal repayments. You won’t be able to take the item home right away, but there’s no interest either.
  • Savings — Use our a savings goals calculator to see how much you need to put aside regularly to reach your savings goal.

Get help if you can’t make repayments

If you’re struggling to meet the payments on an interest-free deal, contact the lender. You have the right to apply to the lender to make your loan more manageable because you’re experiencing financial hardship.

You can also get in touch to talk to a financial adviser and get help to keep your finances on track.

Wealthness Pty Ltd ABN 13 231 248 112 [t/a Better Financial Planning Australia] is a Corporate Authorised Representative of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL No. 236523. It is important to be aware that Better Financial Planning Australia is not authorised by Infocus to provide advice relating to credit services or property advice. Infocus is not responsible for any advice outside of the scope of this authorisation and should you wish to act on any of this general information, please first seek professional financial advice.
Wealthness Pty Ltd t/as Better Financial Planning Australia will endeavour to update the website as needed. However, information can change without notice and Wealthness Pty Ltd t/as Better Financial Planning Australia does not guarantee the accuracy of information on the website, including information provided by third parties, at any time.
This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. Infocus Securities Australia Pty Ltd strongly suggests that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based upon their own personal circumstances. Although we consider the sources for this material reliable, no warranty is given and no liability is accepted for any statement or opinion or for any error or omission.
Wealthness Pty Ltd t/as Better Financial Planning Australia does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this website. Except insofar as any liability under statute cannot be excluded, Wealthness Pty Ltd t/as Better Financial Planning Australia and its employees do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person.
Wealthness Pty Ltd (ACN 613 313 250) [t/a Better Financial Planning Australia] Corporate Authorised Representative of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL Licence No. 236523.

Source: ASIC MoneySmart

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